Hidden Costs of Renewables Going Up

Written by David Turver on July 16, 2025. Posted in Current News

The Government has decided not to proceed with plans to introduce zonal pricing after completing its Review of Electricity Market Arrangements (REMA). Effectively the outcome of REMA is to create a plan for a plan to reform national pricing.

Ed Miliband claims these decisions will “lay the foundation for a fair, affordable, secure and efficient electricity market.”

However, new information from National Energy System Operator (NESO), the Low Carbon Contract Company (LCCC) and Ofgem demonstrates that grid balancing, backup and network costs are all going up. In other words the hidden costs of renewables, in addition to the subsidies we already pay, are going to rise sharply. When you do the maths, the balancing and backup costs are set to rise so much that those costs will be double what we pay for all the gas used to generate electricity. Our bills are going to be far from stable; they are going up and up and up. Hardly fair, affordable, secure or efficient.

Grid Balancing Costs

NESO keeps track of grid balancing costs through monthly and annual balancing cost reports, called MBSS. The electricity grid must balance supply and demand every second of each hour of each day of the year. This task is made more difficult by the addition of variable renewables like wind and solar, where output may vary because the wind blows harder or suddenly drops, or the sun goes behind a cloud. Sometimes wind farms have to be turned off because supply is greater than demand, or because the grid cannot handle their output.

In these situations, we pay to turn them off and these are called “curtailment” charges. Sometimes we need to pay even more to turn on gas-fired power stations to keep the grid in balance.

The MBSS reports track the volume of energy balanced each month and the cost of doing so. By compiling all the data back to 2018 we can look at the trend in volume and cost by financial year, see Figure 1.

Volumes rose steadily from FY2018/19 to 2020/21 and then fell back in FY2021/22 and remained stable until rising again in 2024/25. Despite volumes falling in 2021/22, the cost of balancing spiked, probably as a result of the extra costs of turning on gas-fired generators during the energy crisis. The costs fell in 2023/24 but rose again in 2024/25 to £2.7bn.

Looking forward, NESO projects (p31) that balancing costs will either double or triple to £6.3-8.2bn by 2030 depending upon which of their Future Energy Scenarios is followed (see Figure 2).

Cost rise much more slowly if their “Counterfactual” scenario (black line) is followed. The counterfactual basically means no more spending on Net Zero. Costs then fall out to 2035, but that fall in costs is predicated upon spending £118bn on the transmission network, which as we shall see below, will also push up bills.

Balancing costs already make up about £37 of our electricity bills (see Annex 3, tab 2c BSUoS). The hydrogen Evolution (blue line) would see balancing costs rise to ~£6.3bn in total. Scaling up the existing £37 on our bills would push the costs up by £49 to £86 by 2030. The Holistic Transition (green line) would scale up balancing charges on our bills from £37 by £75 to ~£112.

See more here Substack

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